CINCINNATI--(BUSINESS WIRE)--American Financial Group, Inc. (NYSE/NASDAQ: AFG) today reported 2014
second quarter net earnings attributable to shareholders of $106 million
($1.15 per share) compared to $110 million ($1.20 per share) for the
2013 second quarter. After-tax net realized gains were $7 million ($0.08
per share) in the second quarter of 2014 compared to $26 million ($0.28
per share) in the comparable prior year period. Book value per share,
excluding appropriated retained earnings and unrealized gains on fixed
maturities, increased by $1.16 to $47.95 per share during the second
quarter of 2014. Annualized return on equity was 10.3% and 11.5% for the
second quarters of 2014 and 2013, respectively.

Core net operating earnings were $99 million ($1.07 per share) for the
2014 second quarter, compared to $87 million ($0.96 per share) in the
2013 second quarter. Higher operating income in our Specialty Property
and Casualty (“P&C”) insurance operations as well as slightly higher
earnings in our Annuity segment contributed to these results. Core net
operating earnings for the second quarters of 2014 and 2013 generated
annualized core returns on equity of 9.6% and 9.2%, respectively.

During the second quarter of 2014, AFG repurchased approximately 345,000
shares of common stock for $20 million (average price per share of
$57.95).

AFG’s net earnings attributable to shareholders, determined in
accordance with U.S. generally accepted accounting principles (“GAAP”),
include certain items that may not be indicative of its ongoing core
operations. The following table identifies such items and reconciles net
earnings attributable to shareholders to core net operating earnings, a
non-GAAP financial measure that AFG believes is a useful tool for
investors and analysts in analyzing ongoing operating trends.

Three months ended

Six months ended

In millions, except per share amounts

June 30,

June 30,

2014

2013

2014

2013

Components of net earnings attributable to shareholders:

Core net operating earnings(a)

$

99

$

87

$

190

$

171

Realized gains

7

26

19

62

ELNY guaranty fund assessments

-

(3

)

-

(3

)

Net earnings attributable to shareholders

$

106

$

110

$

209

$

230

Components of Earnings Per Share:

Core net operating earnings

$

1.07

$

0.96

$

2.07

$

1.88

Realized gains

0.08

0.28

0.21

0.68

ELNY guaranty fund assessments

-

(0.04

)

-

(0.04

)

Diluted Earnings Per Share

$

1.15

$

1.20

$

2.28

$

2.52

Footnote (a) is contained in the accompanying Notes to Financial
Schedules at the end of this release.

Carl H. Lindner III and S. Craig Lindner, AFG’s Co-Chief Executive
Officers, issued this statement: “We were pleased to see AFG’s second
quarter core operating earnings per share increase by 11% year over year
as a result of solid results in our specialty P&C group and continued
strong earnings in our annuity segment.

“At June 30, 2014, AFG had approximately $740 million of excess capital
(including parent company cash of approximately $240 million). We will
make opportunistic share repurchases and return capital to shareholders
through dividends. We will also continue to invest excess capital when
we see potential for healthy, profitable organic growth and through
acquisitions and start-ups that meet our target return thresholds.

“Based on results for the first six months of 2014, we continue to
expect core net operating earnings in 2014 to be between $4.50 and $4.90
per share. Our core earnings per share guidance excludes non-core items
such as realized gains and losses, as well as other significant items
that may not be indicative of ongoing operations.”

Specialty Property and Casualty Insurance
Operations

The P&C specialty insurance operations generated an underwriting profit
of $29 million in the 2014 second quarter, compared to $21 million in
the second quarter of 2013. The combined ratio was 96.9%, a slight
improvement from the comparable prior year period. Improved
year-over-year underwriting results in our property and transportation
group and lower catastrophe losses were partially offset by lower
underwriting profit in our specialty casualty group. Catastrophe losses
were $10 million (1.1 points on the combined ratio), compared to $19
million (2.6 points) in the 2013 second quarter.

Gross and net written premiums were up 24% and 33%, respectively, for
the second quarter of 2014, when compared to the second quarter of 2013.
The 2014 results include premiums from Summit, AFG’s specialty workers’
compensation subsidiary, from the date of acquisition on April 1, 2014.
Excluding Summit premiums, growth in gross and net written premiums was
11% and 15%, respectively, due primarily to strong premium growth in
other businesses within our specialty casualty group.

Further details about AFG’s specialty P&C operations may be found in the
accompanying schedules.

The Property and Transportation Group reported an underwriting
loss of $18 million in the second quarter of 2014, compared to an
underwriting loss of $31 million in the second quarter of 2013. The 2014
second quarter underwriting loss was primarily due to adverse prior year
reserve development in our National Interstate subsidiary. Improved
accident year results and lower catastrophe losses in the second quarter
of 2014 more than offset higher adverse prior year reserve development.
Catastrophe losses were $8 million for this group during the second
quarter of 2014. By comparison, catastrophe losses for the second
quarter of 2013 were $18 million.

Gross and net written premiums for the second quarter of 2014 were 10%
and 8% higher, respectively, than the comparable 2013 period. Crop
premiums reported in the second quarter of 2014 are consistent with
average historical results, whereas crop premiums reported in the second
quarter of 2013 were lower than historical trends due to delayed acreage
reporting from insureds as a result of excess moisture and late planting
of corn and soybean crops. Excluding our crop insurance business, gross
written premiums increased by 5% and net written premiums increased by
4%. Pricing in this group was up approximately 6% on average for the
quarter, and includes a 9% increase in National Interstate’s renewal
rates.

The Specialty Casualty Group reported an underwriting profit of
$30 million in the second quarter of 2014, compared to $32 million in
the second quarter of 2013. Higher underwriting profitability in our
workers’ compensation businesses was offset by lower underwriting
profits in our international and general liability lines of business.
Additionally, lower favorable reserve development year-over-year in our
excess and surplus lines and executive liability businesses impacted
these results.

Gross and net written premiums for the second quarter of 2014 were up
49% and 76%, respectively, when compared to the second quarter of 2013,
and include Summit’s results since April 1, 2014. Excluding premiums
from Summit, gross and net premiums grew by 18% and 29%, respectively.
As discussed in the first quarter of 2014, net written premiums were
impacted by a 2013 timing difference in reinsurance ceded in our
international businesses. Excluding the premiums from Summit and the
impact of the timing change, net written premiums in this group grew
19%. While all businesses in this group reported growth, our workers’
compensation, excess and surplus lines, and targeted markets businesses
were primary drivers of the higher premiums. New business opportunities,
increased exposures on existing accounts and sustained pricing increases
have driven the growth in our workers’ compensation businesses. Organic
growth, coupled with the benefit from rate increases over multiple
quarters have contributed to higher premiums in our excess and surplus
businesses. Pricing in this group was up approximately 3% on average for
the quarter.

The Specialty Financial Group reported underwriting profit of $15
million in both the second quarters of 2014 and 2013. Most of the
businesses in this group achieved excellent underwriting margins during
the second quarter of 2014.

Gross written premiums were down 5%, while net written premiums were up
3% during the 2014 second quarter when compared to the same 2013 period.
Growth in gross written premiums was tempered by the October 2013 sale
of a service contract business, which ceded all of its premiums under
reinsurance contracts. Net written premiums increased primarily as a
result of growth in our fidelity/crime and surety businesses, partially
offset by lower premiums in lender-placed mortgage property insurance
offered by our financial institutions business. Renewal pricing in this
group was down approximately 1% for the second quarter.

Carl Lindner III stated: “Our specialty P&C businesses produced solid
results overall during the second quarter, with continued strong growth
in our specialty casualty group. We are excited to see growth in several
of our new niches and the opportunistic expansion of existing
businesses. I am disappointed, however, with the poor results reported
during the quarter in our property and transportation group,
particularly within our 51%-owned National Interstate subsidiary. We
remain committed to our culture of underwriting discipline and achieving
the necessary rate increases to strengthen the underwriting
profitability of this group overall.

“Based on premium growth across our P&C book of business during the
first six months of 2014, we continue to expect net written premium
growth for the full year of 2014 to be between 17% and 21%. We have
adjusted our premium guidance up in our specialty casualty group, and
lowered expectations slightly in our property and transportation and
specialty financial groups. This guidance reflects the inclusion of nine
months of Summit premiums. Overall renewal pricing was up about 3%
during the quarter. Our objective remains to achieve an increase of 3%
to 4% in the specialty group’s overall average renewal rates in 2014.”

Annuity Segment

AFG's annuity operations contributed $84 million in pretax core earnings
in the second quarter of 2014 compared to $82 million in the second
quarter of 2013, an increase of $2 million or 2%. AFG’s 2014 earnings
continue to benefit from growth in annuity assets. While AFG’s average
annuity investments grew nearly 20% over the last year, the impact of
this growth was offset by (i) the runoff of higher yielding investments
and (ii) the impact that fluctuations in interest rates in the second
quarters of 2014 and 2013 had on the accounting for fixed-indexed
annuities.

In the second quarter of 2014, the interest rate index used by AFG to
discount certain fixed-indexed annuity reserves generally decreased 15
to 25 basis points versus AFG’s assumption that interest rates would
rise; this difference had a negative impact on AFG’s earnings due to the
fair value accounting prescribed for fixed-indexed annuities.
Conversely, in the second quarter of 2013, the interest rate index used
by AFG generally increased 70 to 80 basis points, which was much higher
than previously assumed by AFG; this difference between actual and
previously assumed interest rates resulted in a favorable impact on
AFG’s earnings.

As a result of the above, AFG’s net spread earned was 1.46% in the
second quarter of 2014, a decrease of 19 basis points from the
comparable previous year period. See the accompanying schedules for
additional information about spreads for AFG’s fixed annuity operations.

The Annuity segment reported statutory premiums of $949 million in the
second quarter of 2014, an increase of 10% from the comparable prior
year period, but slightly lower than the first quarter of 2014. The
year-over-year increase was largely the result of growth in sales of
fixed-indexed annuities in the financial institutions market.

Craig Lindner stated, “I continue to be pleased with our strong annuity
earnings. Based on the results through the first six months of 2014,
assuming no significant change in interest rates or the stock market, we
continue to expect that the full year 2014 core pretax annuity operating
earnings will be flat compared to the $328 million reported for the full
year of 2013. Significant changes in interest rates and/or the stock
market could lead to significant positive or negative impacts on the
Annuity segment’s results.”

In addressing premiums, Mr. Lindner said, “The second half of last year
was a very strong period of fixed and fixed-indexed annuity sales for
both AFG and the industry, which we attribute primarily to the rising
interest rate environment in 2013. That sales pace has declined in the
first six months of 2014, which we attribute primarily to the decreasing
interest rate environment this year. As a result, based on information
currently available, we now expect that premiums for the full year of
2014 will be 5% to 10% lower than the $4 billion achieved for the full
year in 2013.”

More information about premiums and the results of operations for our
Annuity segment may be found in our Quarterly Investor Supplement, which
is posted on our website.

Run-off Long-Term Care and Life Segment

AFG’s run-off long-term care and life segment incurred a pretax core
operating loss of $2 million in the second quarter of 2014, the same
amount as reported in the comparable prior year period. While AFG’s
run-off long-term care business essentially broke even in the first half
of 2014, AFG’s run-off life segment experienced worse than expected
mortality, after reinsurance.

Investments

AFG recorded second quarter 2014 net realized gains on securities of $7
million after tax and after deferred acquisition costs (DAC), compared
to $26 million in the comparable prior year period. Unrealized gains on
fixed maturities were $656 million, after tax, after DAC at June 30,
2014, an increase of $215 million since year-end. Our portfolio
continues to be high quality, with 86% of our fixed maturity portfolio
rated investment grade and 97% with a National Association of Insurance
Commissioners’ designation of NAIC 1 or 2, its highest two categories.

Second quarter 2014 P&C net investment income was approximately 17%
higher than the comparable 2013 period, reflecting the investment of
cash received in connection with the Summit acquisition.

More information about the components of our investment portfolio may be
found in our Quarterly Investor Supplement, which is posted on our
website.

About American Financial Group, Inc.

American Financial Group is an insurance holding company, based in
Cincinnati, Ohio with assets of approximately $45 billion. Through the
operations of Great American Insurance Group, AFG is engaged primarily
in property and casualty insurance, focusing on specialized commercial
products for businesses, and in the sale of fixed and fixed-indexed
annuities in the retail, financial institutions and education markets.
Great American Insurance Group’s roots go back to 1872 with the founding
of its flagship company, Great American Insurance Company.

Forward Looking Statements

This press release contains certain statements that may be deemed to be
“forward-looking statements” within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934. All statements in this press release not dealing with historical
results are forward-looking and are based on estimates, assumptions and
projections. Examples of such forward-looking statements include
statements relating to: the Company’s expectations concerning market and
other conditions and their effect on future premiums, revenues, earnings
and investment activities; recoverability of asset values; expected
losses and the adequacy of reserves for long-term care, asbestos,
environmental pollution and mass tort claims; rate changes; and improved
loss experience.

Actual results and/or financial condition could differ materially from
those contained in or implied by such forward-looking statements for a
variety of reasons including but not limited to: changes in financial,
political and economic conditions, including changes in interest and
inflation rates, currency fluctuations and extended economic recessions
or expansions in the U.S. and/or abroad; performance of securities
markets; AFG’s ability to estimate accurately the likelihood, magnitude
and timing of any losses in connection with investments in the
non-agency residential mortgage market; new legislation or declines in
credit quality or credit ratings that could have a material impact on
the valuation of securities in AFG’s investment portfolio; the
availability of capital; regulatory actions (including changes in
statutory accounting rules); changes in the legal environment affecting
AFG or its customers; tax law and accounting changes; levels of natural
catastrophes and severe weather, terrorist activities (including any
nuclear, biological, chemical or radiological events), incidents of war
or losses resulting from civil unrest and other major losses;
development of insurance loss reserves and establishment of other
reserves, particularly with respect to amounts associated with asbestos
and environmental claims and AFG’s run-off long-term care business;
availability of reinsurance and ability of reinsurers to pay their
obligations; trends in persistency, mortality and morbidity; competitive
pressures, including those in the annuity distribution channels, the
ability to obtain adequate rates and policy terms; changes in AFG’s
credit ratings or the financial strength ratings assigned by major
ratings agencies to our operating subsidiaries; and other factors
identified in our filings with the Securities and Exchange Commission.

The forward-looking statements herein are made only as of the date of
this press release. The Company assumes no obligation to publicly update
any forward-looking statements.

Conference Call

The Company will hold a conference call to discuss 2014 second quarter
results at 11:30 a.m. (ET) tomorrow, Tuesday, July 29, 2014. Toll-free
telephone access will be available by dialing 1-877-459-8719
(international dial-in 424-276-6843). The conference ID for the live
call is 67319962. Please dial in five to ten minutes prior to the
scheduled start time of the call.

A replay will be available two hours following the completion of the
call and will remain available until 11:59 p.m. (ET) on August 5, 2014.
To listen to the replay, dial 1-855-859-2056 (international dial-in
404-537-3406) and provide the conference ID 67319962.

The conference call and accompanying webcast slides will also be
broadcast live over the Internet. To listen to the call via the
Internet, go to the Investor Relations page on AFG’s website, www.AFGinc.com,
and follow the instructions at the Webcasts and Presentations
link.

The archived webcast will be available immediately after the call via
the same link on the Investor Relations page until August 5, 2014 at
11:59 p.m. (ET). An archived audio MP3 file will be available within 24
hours of the call.

(Financial summaries follow)

This earnings release and AFG’s Quarterly Investor Supplement are
available in the Investor Relations section of AFG’s website: www.AFGinc.com.

* Calculated as a percentage change for dollars and an arithmetic
difference for percentages.

AMERICAN FINANCIAL GROUP, INC.

Notes to Financial Schedules

a) Components of core net operating earnings (in millions):

Three months ended

Six months ended

June 30,

June 30,

2014

2013

2014

2013

Core Operating Earnings before Income Taxes:

P&C insurance segment

$

97

$

82

$

205

$

178

Annuity segment

84

82

157

158

Run-off long-term care and life segment

(2

)

(2

)

(4

)

(3

)

Interest & other corporate expense

(37

)

(39

)

(78

)

(84

)

Core operating earnings before income taxes

142

123

280

249

Related income taxes

43

36

90

78

Core net operating earnings

$

99

$

87

$

190

$

171

b) Earnings before income taxes includes $18 million in non-deductible
losses attributable to noncontrolling interests related to managed
investment entities in both the second quarter and first six months of
2014 and $31 million and $42 million in the second quarter and first six
months of 2013, respectively.

c) Shareholders’ Equity at June 30, 2014 includes $656 million ($7.32
per share) in unrealized after-tax gains on fixed maturities and $31
million ($0.35 per share) of retained earnings appropriated to managed
investment entities. Shareholder’s Equity at December 31, 2013 includes
$441 million ($4.93 per share) in unrealized after-tax gains on fixed
maturities and $49 million ($0.55 per share) of retained earnings
appropriated to managed investment entities. The appropriated retained
earnings will ultimately inure to the benefit of the debt holders of the
investment entities managed by AFG.